Financial Management: Theory & Practice (MindTap Course List)
15th Edition
ISBN: 9781305632295
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
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Chapter 24, Problem 5SP
Summary Introduction
Determine: Amount that is available for distribution to shareholders and all claimants.
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Deere, Inc. will be liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets will be sold for $4,000,000 and current assets will be sold for $3,000,000. All fixed assets are pledged as collateral for all mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $750,000.
Before
Before
Default
Balance Sheet
Default
Current Assets
5,000,000
Accounts payable
1,000,000
Net fixed assets
7,000,000
Accrued taxes
50,000
Accrued wages
85,000
Notes payable
2,000,000
Total current liabilities
3,135,000
First-mortgage bonds
2,000,000
Second-mortgage bonds
3,000,000
Subordinated debentures
5,000,000
Common stock
300,000
Retained earnings
(1,435,000)
Total assets
12,000,000
Total claims
12,000,000
a. How much will SHs receive?
b. How much will mortgage bondholders receive?
c. How much will…
2.) Sisy Company has an outstanding 950,000 note payable to Bro Finance Corporation. Because of financial difficulties, Sisy negotiates with Bro to exchange inventory of machine parts to satisfy the debt. The cost of the machine parts inventory transferred is carried at sisy's books at P 610,000. The estimated sales price of these inventory items is p 835,000.
REQUIRED:
a.) How much shall be recognize as gain on debt restructuring?
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Chapter 24 Solutions
Financial Management: Theory & Practice (MindTap Course List)
Ch. 24 - Prob. 1QCh. 24 - Why do creditors usually accept a plan for...Ch. 24 - Would it be a sound rule to liquidate whenever the...Ch. 24 - Why do liquidations usually result in losses for...Ch. 24 - Prob. 5QCh. 24 - Southwestern Wear Inc. has the following balance...Ch. 24 - Prob. 3PCh. 24 - Prob. 4PCh. 24 - Prob. 5SPCh. 24 - Prob. 1MC
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